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Inox Leisure takes a hit, lease properties damage profit in Q3

MUMBAI: Integrated multiplex chain operator Inox Leisure has suffered a double whammy, as evident from its December-quarter financial performance. Higher lease property rentals and the termination of a Mumbai lease property have collectively hammered its operations and profitability.

In the quarter ended December 2013, Inox Leisure’s income from operations expanded 2.94 per cent to Rs 214.3 crore (Rs 2.14 billion). As the company managed a hike in ticket rates while staying focused on high value, long-term deals, their contribution to total revenues has recorded a sizeable jump. Other revenues have grown more than twofold to Rs 13.90 crore (Rs 139 million).

Encouraging trend did emerge from the ongoing scenarios in the theatrical businesses. However, business operations which are largely dependent on leased properties are subject to high rentals and other related expenses.

Even though Inox managed to keep exhibition costs under check, a surge in property rents and other related charges as well as higher employee expenses led to a seven per cent increase in operating expenses at Rs 187.4 crore (Rs 1.87 billion).

Faster growth in operating expense than in operating income resulted in the operating margin almost stagnating at 8.7 per cent during the quarter under review, compared to 8.4 per cent recorded during corresponding quarter in the previous fiscal.

Lower interest payment, tax expenses, almost unchanged depreciation provisioning and higher other income could hardly cushion the drop in net profit. The factors collective resulted in a 38 per cent slide in net profit to Rs 6.58 crore.

Termination of one of its Mumbai properties adversely impacted Inox’s showing.

Fame Big Cinemas Multiplex at Citi Mall Mumbai, a joint venture between Inox Leisure and Swanston Multiplex Cinemas Private Limited, stopped operations from July 2012 owing to the termination of lease agreement.

As such, the company has made provisioning of Rs 2.50 crore (Rs 25 million) towards diminution in the value of investment from the said joint venture.

In the past, the company had made merry on the recent success of blockbuster films, thereby improving content supply to film exhibitors. Increased footfalls and high average ticket prices (ATP) aided in Inox Leisure’s hefty topline and fatter bottomline. Furthermore, the company managed to keep a lid on exhibition costs and selective relief from entertainment tax, which yielded improvement in operating profit as well as margin.

A poor showing in Q3FY14 had an adverse impact on Inox Leisure’s share price. On the BSE, the counter settled the session at Rs 98.15, down 4 per cent.